The fund rose 1.3% against the benchmark advance of 4.3%, bringing the rolling 12-month performance to 9.3% against the 9.8% returned by the MSCI All Country World Index.

Developed market equities rose strongly over the quarter, shrugging off a further US Federal Reserve rate hike in September and increasing trade war tensions between the US and China after US President Trump introduced tariffs on an additional $200-billion of US imports from China, with the introduction rate of 10% set to increase to 25% in 2019. This was primarily owing to robust global growth, which the US economy continues to drive, with strong growth supported by Japan, Korea and Taiwan. Emerging markets declined by 2.0% for the quarter and briefly went into a bear market by falling more than 20% since their peak level in January, before recovering somewhat towards the end of the quarter. A strong US dollar has put pressure on those countries with current account deficits to raise rates, most notably Argentina and Turkey, and caused some volatility in other emerging markets.

North America was again the best-performing region in Q3, rising 7.2%. The weakest return was from the Pacific ex-Japan, which declined 0.5% (in US dollar terms). Japan rose 3.8% (in US dollar terms) and Europe advanced 0.8% (in US dollar terms). Emerging markets were again very weak, declining 2.0% (in US dollar terms), significantly underperforming developed markets, which rose by 4.3%. On a look-through basis, the fund is overweight North America, equal weight to Europe and underweight Japan.

Among the global sectors, healthcare (+11.2%), information technology (+7.9%) and industrials (+5.7%) generated the best returns. The worst performing sectors were real estate (-1.6%), materials (-1.2%) and energy +0.1%). On a look-through basis, the fund underperformed due to an underweight in healthcare and an overweight to consumer discretionary stock. An overweight to technology stocks was beneficial to the fund.

The fund's biggest detractor for the quarter was Contrarius Global Equity, which underperformed the benchmark by 9.3%. However, despite this quarterly setback, Contrarius' return has been so strong over the year that it has still generated 5.3% alpha on a year-to-date basis. This quarter's performance was largely driven by Twitter (-34.8%), which closed a large number of fake accounts that distorted their user numbers, the consumer discretionary stocks JC Penny (-29.1%), Bed Bath & Beyond (-24.1%) and JD.Com (-33.0%).

The fund's emerging market exposure, through the Coronation Global Emerging Markets Fund, was also a significant detractor, given that emerging markets underperformed developed markets by a wide margin over the quarter. However, the manager also underperformed the emerging market index, with detractors including Yes Bank (-46.0%), JD.com (-33.0%) and Ctrip (-22.0%). Despite the turmoil in emerging markets, there were also some positive returns, including Pin An Insurance (+11.2%), Kroton (23.7%) and Visa (+13.5%).

Tremblant, Egerton, Eminence and Coronation Global Equity Select all detracted over the quarter with relative underperformance against the index.

Maverick enjoyed a good quarter, posting modest alpha of 1% with good contributions from many of their top holdings including Shire (+8.5%), Walt Disney (+12.5%), DXC Technology (+16.3%) and Microsoft (+16.4%).

Outlook

Global monetary policy remains on a steady footing, with the US Federal Reserve on a slow and steady increase trajectory and Europe, UK and Japan still in an accommodative phase for the next 12 months or longer. This should be generally supportive of developed market equities, although they do look expensive on some metrics. Emerging markets have experienced some pain in recent quarters, but are now on attractive valuations, offering good growth at a reasonable price. The risk at this time remains the unknown outcome of the US-China trade talks, which have reached somewhat of an impasse with US President Trump's imposition of additional tariffs. The tension will ratchet up another level come the new year, when the rate increases to 25%. A further risk is the Brexit negotiations, which need to be finalised by November in order for any agreement to be ratified by the exit date of 29 March 2019. Although the potential for no deal has increased in recent months, such an outcome would be very disruptive to European markets. There is potential for some volatility in coming months.

The fund rose 2.8% against the benchmark advance of 0.5%, bringing the rolling 12-month performance to 13.9% against the 10.7% returned by the MSCI All Country World Index.

The slight advance in the index somewhat masks the significant decline in emerging markets which fell 8.0% (in US dollar terms), significantly underperforming developed markets by 9.7%. The decline was most likely due to a combination of fears of a global trade war and US dollar strength as the Federal Reserve raised interest rates by a further 0.25% in June. The US President is stoking the flames of a trade war, not only with China but also with his allies in Europe and Japan, all of which have vowed to retaliate. This unsettled the market at times.

North America was the best performing region this quarter, rising 3.6%. The weakest return was from Japan which declined 2.8% (in US dollar terms). Europe also declined 0.9% (in US dollar terms) and the Pacific ex-Japan rose 1.8% (in US dollar terms). On a look through basis, the fund is overweight North America, equal weight to Europe and underweight Japan.

Among the global sectors, the best returns were generated by energy (+11.9%), information technology (+5.6%) and consumer discretionary (+3.5%). The worst performing sectors were telecommunications (-4.2%), financials (-5.2%) and industrials (-2.8%). On a look-through basis, the fund benefited from its overweight positions in information technology and consumer discretionary and underweight position in financials. Its underweight position in energy and overweight position in consumer staples would have detracted from performance.

The strong returns this quarter were dominated by three of the underlying funds, Contrarius Global Equity, Maverick Capital and Egerton Capital.

Contrarius Global generated alpha of 13.5% over the quarter, benefitting from its exposures to energy and consumer discretionary stocks. An example of the latter was Fossil which more than doubled over the quarter after strong sales in smart watches and a 5% y/y increase in sales. Twitter, a long-held position, also performed strongly, rising more than 50% over the period.

Maverick Capital benefitted from its positions in technology and healthcare. Shire, a pharmaceutical company that had been a drag on performance in quarters past, finally came through and rose 19% after a takeover by Takeda Pharmaceutical. Facebook, up 29% over the quarter also added alpha as it recovered from its recent Cambridge Analytica woes.

Egerton Capital also benefitted from holding Facebook but 21st Century Fox and Safran also contributed strongly to the positive performance. 21st Century Fox was subject to a bidding war by Disney and Comcast which drove the price higher, while aircraft engine manufacturer, Safran, rose 24% after Airbus announced a strong order book and delivery schedule.

During the quarter, the fund redeemed from Vulcan Value Partners. We have been long-term investors with Vulcan and have enjoyed a successful investment with them over the years. However, we are increasingly looking to invest in global funds and Vulcan is more US orientated and we decided to allocate the funds to our global managers.

Outlook

The US economy is strong but there are concerns about overheating in developed economies and the impact of consequent inflation. In addition, the potential for a global trade war and other geopolitical issues will continue to weigh on global markets and investors' minds. However, we believe the key risk is the normalising of the interest rate cycle which is now underway in the US and will be followed in due course by the UK, Europe and Japan. After a decade of near zero interest rates, the potential for missteps is great and the fall out could be severe. But, perhaps in recognition of this, central banks are proceeding cautiously and gradually. As such, although we are cognisant of stretched valuations, we believe the US and global economy will be resilient for the remainder of the year and remain supportive of the markets. But the risks will only increase into next year.